ITAD BIR Ruling No. 013-17

April 17, 2017 ITAD BIR RULING NO. 013-17 Section 32 (B) (7) (a), Tax Code; Article 34, Vienna Convention Embassy of Greece 7F Unit 701, SEDDCO 1 Bldg., 120 Rada corner Legaspi Street Legaspi Village, Makati City 1229 Gentlemen : This refers to your Note Verbale No. 840/3/AS 20 dated 23 January 2017 referred to this Office by the Office of Protocol of the Department of Foreign Affairs requesting for a certification that the Embassy of Greece is exempted from withholding tax on interest derived on bank deposits. In reply, please be informed that Section 32 (B) (7) (a) of the National Internal Revenue Code of 1997, as amended (Tax Code), provides that: ""Sec. 32. Gross Income. (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: (7) Miscellaneous Items. (a) Income Derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments and (iii) international or regional financial institutions established by foreign governments." (Underscoring provided) Based on the above provision, interest on deposits in Philippine banks derived by a foreign government is excluded from the computation of gross income and is exempt from taxation. A diplomatic mission/foreign embassy falls within the purview of the term "foreign government" as used in the afore-quoted provision and is, therefore, exempt from income tax and consequently from the final withholding tax on interest on deposits in banks in the Philippines. It is worthy to mention, however, that personal savings/current account maintained by diplomatic personnel in local banks are not covered by Article 34 of the Vienna Convention on Diplomatic Relations (Vienna Convention), which states, to wit: "Article 34 A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except : (d) Dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State;" (Underscoring provided) In view of the foregoing and considering that the Embassy of Greece represents the Government of Greece, this Office is of the opinion that interest income derived by the Embassy of Greece from its deposits held in local banks in the Philippines are exempt from tax, pursuant to Section 32 (B) (7) (a) of the Tax Code. However, diplomatic personnel are subject to Philippine withholding tax on interest derived from their personal savings/current accounts maintained with local banks, pursuant to Article 34 of the Vienna Convention. For your information and guidance. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue